How Your Suppliers are Killing Your Start-up

Matt Ryczek By on October 4, 2017

Start-ups are no different than any other businesses; their supply chain is the key to their success, but start-ups face the age-old question, “What came first, the chicken or the egg?” Before we discuss this concept, the key is regarding any supply chain: physical products or services. If your brand or start-up is reliant on any other facets or companies, then that is your supply chain. Established suppliers and manufacturers tend to ignore start-ups or first opening orders due to the loss of efficiencies in their process to produce a smaller than usual opening order. We know everyone almost always goes to the most well-known and established supplier, right? But, what if you designed your supply chain in a way that made you more successful, with mutual respect and a common goal? That is what this is about. Designing your supply chain and not relying on the cheapest, fastest, or biggest names to produce.

After all, every part of your start-up is design and intentional. You either chose your path or you chose to ignore specific aspects of it. Either way, you are deliberately where you are by your own volition. If you have not realized this truth, then now is the time to come to terms with it.

When it comes to a supply chain do not confuse ignorance to lack of intentional design. Working with start-ups for the last 15 years, one constant seen is the supply chain design. Start-ups want to send out 20 NDA’s and have everybody quote a project (assuming they are equal in all aspects including structure and morals.) Sending out specifications to China suppliers, Mexico Suppliers, or even US suppliers, requires us to have numerous meetings to gain the desired rapport and be ready to place a purchase order. Unfortunately, after these processes, many things can happen; for example, you find out that you worked with a broker, they have amortized the tooling cost over the first order parts (they won’t give you rights to the tool), or after the tooling is paid they have zero experience in your industry. The fact is you’re screwed, not just figuratively, but out of capital, out of parts or services, and most importantly, you’re out of time. Partnering with my China factory 12 years ago (Idea House MFG, specifically not a broker), I have seen these scenarios and much worst experienced them firsthand. When clients call with these issues, it is never pretty and always costs more capital.

So, what’s a start-up to do?

Design your supply chain. You spend countless hours developing and solving problems, but when it comes to your supply chain you vomit RFQ’s (request for quotation) on Alibaba, Thomasnet, or MFG.com and hope for the best. You wouldn’t do this with your services or products. Why start here? Essentially, this is the key to your start-up surviving and succeeding. Design to fit your needs; if your MOQ (minimum order quantity) needs to be 500 for your opening order (and it can be done, yes even in China), then do not go to the largest supplier in the specific industry. If you do go to the largest supplier, their overhead and structure will either increase the MOQ past where you can survive it or the cost will choke out any profits for you while you try to stay below the market price ceiling.

Find a supplier that will walk you through options. Ask questions about tooling design (this will affect part cost), be ready to discuss your sales forecast and negotiate a lower MOQ for the opening order with a gradual increase as your scale up. Any suppliers should be willing and 1000% transparent in helping you find a solution to meet quantity, quality, and pricing. If they aren’t, then move on to the next one. At the end of the day, your start-up or business is solving a problem, maybe it’s saving the world, or it’s just entertainment, but the reality is your ignorance or lack of attention is a choice that, undoubtedly, will affect your business, profit margins, and your success.